London Markets: FTSE 100 flails as U.S. and China march into trade war

U.K. stocks slipped Friday, with mining shares among those losing ground as the U.S. and China began implementing tariffs on each other’s goods.

How markets are moving

The FTSE 100 index UKX, -0.35% was off 0.3% at 7,576.73, giving up an earlier gain. The oil and gas and financial sectors lost the most, while the telecom and utilities sectors topped advancers. The benchmark on Thursday rose 0.4%.

For the week, the blue-chips gauge was looking at an 0.8% decline, which would follow last week’s fall of 0.6%.

The pound GBPUSD, +0.3328% was at $1.3264, up from $1.3223 late Thursday in New York.

What’s driving market

The U.S. implemented tariffs on $34 billion in Chinese imports as of 12:01 a.m. Eastern Time, a move seen as the start of a trade war between the world’s two largest economies. As promised, Beijing has responded in kind, with levies on the same value of 545 U.S. goods, including agricultural products and vehicles.

Just ahead of the tariff action, President Donald Trump threatened to escalate the trade tensions by imposing further duties on more than $500 billion in Chinese imports — roughly the amount of total goods the U.S. imported from China last year.

See: How will investors know if there’s a full-blown trade war? Here’s what Wall Street says

U.K. Prime Minister Theresa May and her cabinet ministers are meeting at Chequers, May’s official country house retreat, to discuss Brexit strategy, as European Union leaders’ patience runs short.

The British government has “no clue” how to pull off Britain’s exit from the European Union without harming businesses, Airbus AIR, +0.74% Chief Executive Tom Enders told reporters Friday. Airbus has warned it will likely have to exit from the U.K. if it leaves the EU’s single market, which is considered a hard Brexit.

U.K. blue-chips remained lower after the release of the U.S. Labor Department’s June nonfarm payrolls report. The jobs report can have implications on pricing for U.S. interest-rate expectations, and sway assets prices worldwide. A larger-than-expected 213,000 new jobs were created last month, and the unemployment rate unexpectedly rose to 4% from 3.8%.

What strategists are saying

“An element of risk-off into the weekend, albeit limited, as we’ve been prepped for this for weeks, if not months. Having started with tariffs on $34 billion of Chinese goods, the question now is how far Trump scales it up towards the $500 billion figure he has been throwing around and what the fallout is as he tries to punish China to prove himself a U.S. protectionist,” said Mike van Dulken, head of research at Accendo Markets.

Stock movers

Mining shares were down as the U.S. and China fired their tariffs against each other, and as copper prices HGU8, -0.78% headed toward a weekly slide of more than 5%. China is the world’s largest copper buyer. Shares of copper producer Fresnillo PLC FRES, -3.35% dropped 3.7%, Anglo American PLC AAL, -2.60% shed 2.6%, and Randgold Resources PLC RRS, -1.44% fell 1.8%.

Direct Line Insurance Group PLC DLG, -4.08% stumbled 4.1% and rival motor insurance provider Esure Group PLC ESUR, -4.20% fell 4.5% on the mid-cap FTSE 250 MCX, -0.18% index. Barclays cut its rating on Direct Line to equal-weight, and Esure’s to underweight, saying in part that the “soft market” saw further price declines in April through May. “Generous” dividend yields of 6% to 8% favor of U.K. motor insurers, but lower earnings would lead to lower dividends, said analysts Ivan Bokhmat and Alan Devlin in a research note.

ITV PLC ITV, +5.06% jumped 5.4%, the best performer on the FTSE 100. The broadcaster was upgraded to a buy rating from sell at Societe Generale, according to CMC Markets.

Inmarsat PLC ISAT, -4.83% dropped 6.6% on the FTSE 250 index after the British satellite-communications company rejected an improved buyout offer from EchoStar Corp. SATS, +0.42% , which is now courting the company’s board. The higher bid valued Inmarsat at 2.45 billion pounds ($3.24 billion).

BHP Billiton PLC BLT, -1.36%BHP, -0.35% lost 1.7%, with the mining heavyweight and workers at its Escondida copper mine in Chile still “far from reaching agreement” over labor issues before a negotiation deadline hits in less than three weeks, Reuters reported on Thursday.